In 1991, the new Government of Ethiopia faced a triple fiscal challenge. First, a major effort was required to overhaul and modernize the tax system. Second, the need to switch expenditure from military to civilian uses had to take place within a potentially severely reduced resource total. The severity of the general financing problem was however ameliorated by a rise in aid flows. Third, there was the political imperative to press on with the process of fiscal decentralization that was the necessary accompaniment to political decentralization. The present government has, for the most part, been quite impressive in macroeconomic policy, fiscal reform and public expenditure management. It has embarked on a radical decentralization programme and an ambitious civil service reform. Its record on privatization has been mixed, and privatization has proceeded at a much slower pace than elsewhere in sub-Saharan Africa.